A Glossary of Mortgage Terms and Their Definitions for New Home Buyers

A Glossary of Mortgage Terms and Their Definitions for New Home Buyers

 

Buying your new home is an exciting new adventure! As with every new adventure, there may be some new terminology that you may not be familiar with. This handy guide can inform you as you complete your mortgage documentation. Don’t forget – you can always contact the friendly folks at Ownest for any additional information or help relating to your mortgage application!

 

Adjustable-Rate Mortgage

Adjustable-rate mortgages, or ARMs, are also known as variable-rate mortgages. ARMs have flexible interest rates, meaning that the interest rate on the mortgage will vary based on an underlying index and the prime interest rate set by the lender. (Also see Variable Rate Mortgage)

Affordability

Your ability to carry the cost of ownership of a property in relation to your available income.

Amortization

A fancy way of saying the process of spreading out payments over time. You pay your mortgage over time by way of instalment payments which usually include principal and interest. At the start of your loan period, most of your payment goes towards interest, but over time you chip away at the principal. (See Principal and Interest.)

Amortization Period

The period of time required to repay your mortgage by equal instalments of set payments based on a particular interest rate. The payments are usually a combination of principal and interest in blended amounts.

Amortization Schedule

A table showing the amount of principal and interest in each of your payment instalments and the outstanding principal balance of the loan after each payment is made.

Annual Percentage Rate

Annual percentage rate (APR) is the interest rate that you will pay annually for your loan. It includes additional lender fees. It is usually expressed as a percentage. If you see two interest rates when you shop for a loan or mortgage, the higher rate is your APR.

Applicant (Mortgage)

Refers to all borrowers, co-borrowers and guarantors on a mortgage loan application.

Appraisal

An unbiased opinion by a professional of your home, based on your home’s physical and functional characteristics and the value of homes nearby. Mortgage lenders require an appraisal before they will grant you a mortgage on your home.

Balance

The amount of unpaid mortgage left after a payment has been made.

Blended Payments

Blended payments are a way of repaying a loan that sets equal monthly payments of principal and interest (blended) over an amortization period. By contrast, in a “principal and interest” loan, the borrower pays back the same amount of principal each month, plus a steadily decreasing interest payment.

Borrower

The one who obtains financing from a lender with the agreement that it will be repaid, with interest, within a defined timeframe. You are the borrower if you are getting a mortgage.

Canada Guaranty

A leading private mortgage insurer providing mortgage default insurance.

Canada Mortgage and Housing Corporation (CMHC)

The federal crown corporation that established mortgage default insurance for lenders and which promotes the construction of new homes, the repair and modernization of existing houses, and the improvement of housing and living conditions. (See also Canada Guaranty and Genworth)

Closed Mortgage

A closed mortgage is one that cannot be fully paid off, refinanced or renegotiated before the end of the term without incurring a penalty. Lender breakage costs, the opportunity cost to a lender of a borrower repaying a loan before scheduled maturity, will incur a payout penalty.

Credit Report

A record that details an applicant’s past borrowing and repayment history, and which is the reason for their credit score. Lenders often obtain borrower’s credit reports from Equifax and Trans Union.

Credit Score

Your credit score is a three-digit number that comes from the information in your credit report. It shows how well you manage credit and how risky it would be for a lender to lend you money. Your credit score is calculated using a formula based on your credit report.

Debt Ratio

Also called debt-to-income ratio or debt service ratio, it’s a comparison of your total monthly payments to your income. It is used to determine how much of a mortgage you can afford as a borrower. It’s the percentage of your income that goes toward paying your monthly debts, and it helps lenders decide how much you can borrow. (Also see Gross Debt Ratio and Total Debt Service)

Down Payment

The part of the purchase price of a home that the buyer pays in cash and does not finance with a mortgage. The minimum requirement in Canada is five per cent and can be from your own resources (cash, savings, investments) or be gifted or borrowed from a credit card or line of credit.

Fixed-Rate Mortgage

A fixed-rate mortgage is one in which the interest rate remains the same over the whole term of the mortgage.

Floating Rate

A floating (aka variable or adjustable) mortgage rate refers to a mortgage that does not have a fixed rate of interest over the life of the instrument but rather floats with the market.

Genworth

A leading private mortgage insurer providing mortgage default insurance.

Gross Debt Ratio

A ratio that is the percentage of your income needed to pay all of your monthly housing costs, including principal, interest, taxes, and heat (PITH). It also includes 50% of your condo fees, if applicable. The percentage can vary by lender.

Interest Rate

The amount charged by a lender to a borrower for the use of borrowed funds, calculated as a percentage of the principal.

Lender

The bank or other institution responsible for underwriting, funding, and administering your mortgage loan and to whom your real estate is pledged as security for the loan. (Also see Mortgagee)

Maturity

The end of a term, or period, for a mortgage loan at which time the borrower may have the option to pay off the mortgage, renew it with the existing lender or transfer it to another lender. The maturity date of a mortgage is when the mortgage term ends. It is often referred to as the renewal date because it’s when you as the borrower may have the option to renew, refinance, or pay your mortgage off completely, with no penalty. (Also see Mortgage Renewal)

Mortgage

A mortgage is a type of loan used to buy a home or other property. It allows the lender to take possession of the property if you don’t repay the loan on time. The property is the security for the loan. The payments cover the interest on the loan plus the principal (the amount of the loan).

Mortgage Insurance

A credit risk management tool protecting the lender from losses due to default on the mortgage by the borrower. It is typically required when the loan to value ratio for the property is 80% or greater.

Mortgage Pre-Qualification

A pre-qualification gives you an estimate of ow much house you can afford, based on your credit information, gross household income and overall finances. It does not require supporting paperwork.

Mortgage Pre-Approval      

The tentative approval for a mortgage, made in advance of a home purchase. It is valid for a specified time period and is subject to the borrower submitting their supporting documentation to the lender, and subject to their financial position not changing. Once a property has been purchased, the property must also meet the lender’s underwriting requirements.

Mortgage Renewal

The process by which a borrower agrees to another mortgage term with the current lender to replace the term that has matured. At the end of the prior mortgage term, and with a balance of funds still owing, the borrower may choose to continue with the same lender for another term. However, the details of the mortgage document may change at the time of the mortgage renewal to reflect the current mortgage market. The new term leaves the existing registered mortgage in place and is therefore not considered a new mortgage. The old mortgage document secures the renewed term, and its provisions are amended to fit the new term.

Mortgage Statement

A statement received from the lender that includes details of the mortgage such as property address, outstanding principal balance, monthly payment, interest rate and mortgage term.

Mortgage Term

The period for which the lender loans funds to the borrower, as specified in the mortgage agreement. At the end of the mortgage term, the principal and unpaid interest are due and payable by the borrower to the lender. At that time, the borrower may renew or refinance the mortgage. (Also see Mortgage Refinance and Mortgage Renewal)

Mortgagee

An individual or organization that lends money secured by real property for which they may receive specified payments according to the mortgage agreement. (Also see Lender)

Mortgagor

The borrower in a mortgage, typically the home buyer. The mortgagor makes specified payments according to the mortgage agreement. (Also see Borrower)

Open Mortgage

A mortgage that can be paid off early without any penalties or fees attached.

Principal (Mortgage)

The amount of funds originally borrowed from the lender or the portion of a mortgage still owing upon which interest is calculated.

Qualifying

The process of determining a prospective borrower’s eligibility for mortgage financing related to a potential real estate purchase. (Also see Mortgage Pre-Approval)

Term

The period for which the lender loans funds to the borrower, as specified in the mortgage agreement. (Also see Mortgage Term)

Total Debt Service (TDS)

The percentage of the borrower’s income that is needed to cover housing costs (GDS) plus any other monthly obligations that an individual has, such as credit card payments and car payments. The percentage can vary by lender. (Also see Debt Ratio)

Title

A document that records the information about the land, such as the legal land description, municipal jurisdiction, ownership, and registered interests. The Land Titles Office no longer issues a paper Certificate of Title, but a paper copy may be available from any Registry Agent in Alberta. An electronic copy is available on the Spatial Information System (SPIN) operated by Alberta Registries, Service Alberta.

Variable Rate Mortgage

A mortgage where the interest rate is periodically adjusted based on the prime lending rate typically set by the lender. Rather than being a Fixed Rate Mortgage, which has the same interest rate over the term, when an interest rate change occurs, payments may be increased or decreased. (Also see Floating Rate)

 

Do you have mortgage-related questions? Feel free to contact us and one of our friendly in-house experts will be happy to help!

 

Customer and Business Insights

Know Your Customer. Optimize Your Operations.

Pront-O by Ownest lets you know your customer up front

To make effective business decisions, it’s important to have the right customer and business insights. By analyzing the insights that our platform provides, you’ll make better decisions about what, when and how to sell to customers. Managers will also be able to monitor the productivity of strategies and staff. The results? Increased efficiency and profitability.

Now You Can Lead the Sales Conversation

Knowing your customer’s creditworthiness at a glance is a major sales advantage. But the Ownest system provides other valuable insights. Lead the sales conversation intelligently, identify the most appropriate product, and introduce up-selling or cross-selling opportunities. Pront-O gives the borrower choice, convenience and control – you have an instant, detailed and accurate snapshot of their creditworthiness.

Ownest's Pront-O app Instantly Pre-Qualify Borrowers with the 5Cs of Credit

The Five Cs of Credit

Lenders use these criteria to gauge the creditworthiness of potential borrowers. The Five Cs are used as part of the due diligence process to predict the chance of default and overall risk for the lender. Using the Five Cs gives a better overall picture of the borrower, by including the more ‘personal’ side of financing, like their character, as opposed to just past history and collateral.

 

Ownest's software verifies credit using the Five Cs of credit


Unmatched, Actionable Customer Insights

In addition to instantly validating their actual verified income via CRA and determining a customer’s creditworthiness, once the applicant is a customer, the autonomous mortgage application delivers even more in-depth insights about them.

  • Demographics – age, income, gender and education are useful real estate demographics – for an individual sale and for future planning. In addition to giving you the information you can use to identify up-selling or cross-selling opportunities, they give you useful data for identifying micro-markets or peer groups that share certain characteristics. Demographics give you actionable information to develop marketing strategies so you can sell into large and niche markets.
  • Geographic/Spatial – if the customer is applying from work, it may inform their choice of home location, so it’s valuable information to have in personalizing their potential real estate choices, for example.
  • Lifecycle – knowing where the customer is in the real estate lifecycle helps you position your product for whatever stage they’re in. For example, millennials starting families have different priorities than boomers looking to downsize. The customer lifecycle applies to other industries, such as insurance, auto sales and even home renovations – just to name a few.

 

Build Loyalty

Optimize your customer lifecycle from initial engagement to retention and loyalty. Our easy, automated outreach (via the widget) helps maintain the connection and develop customer trust with engaging touchpoints along the way. You’re giving them a reason to do repeat business with you and to refer family and friends.

 

With Ownest, you can engage in their journey, not just their transaction.

 

Business Insights: The Dashboard

Your cloud-based dashboard allows you to stay on top of leads, conversions, reports and notifications, all in real-time. It’s a user-friendly visual snapshot that’s accessible from any device – desktop to mobile.

For Sales Staff

After the system intelligently screens and ranks leads using the Five Cs of credit, they are visually depicted in the dashboard using the stoplight colour system, so you’ll know your customer’s credit status at a glance. You’ll also have all the functionality of a CRM, including:

  • Application status – giving you visibility into the mortgage process

  • Document uploads – the system organizes it once the client does their part

  • Email tracking and open rates

  • Calls/appointments and engagement on the account

  • Shareable newsfeed, so you can engage your customers with useful industry info

  • Marketing ROI, such as lead sources and conversion rates

The dashboard is your automated super-assistant, monitoring every phase of every transaction, so you’ll know exactly where each deal is at and what needs to be done next.

For Managers

The platform also provides a customizable overview of employee and team performance data, whether sales or marketing, allowing you to identify and manage important KPIs for employee productivity and other ROI optimizing analytics across the organization.

With Ownest, you really can Know Your Customer (and your operations) like never before.

 

Click to learn how Pront-O provides key customer and business insights to help you lead the sales conversation.

 

 

A Tale of Two Salespeople

A Tale of Two Salespeople

 

To illustrate how Pront-O supercharges the sales process, let’s look at the work journeys of two different salespeople – Jen and Mike. Jen and Mike are both excellent sales associates, working for different home builders. Their employers have a broad inventory of multi and single-family residential homes. Both have similar jobs but only one of them has the benefit of Pront-O, the Ultimate Lead Qualifier.

Mike – Sells the Traditional Way

It’s a busy weekend and Mike is hard at work in the show suite. There are numerous potential customers in the show home, but Mike can’t know for sure who is serious and more importantly, who can afford what product. Mike looks around the busy showroom and wishes there were a way he could know upfront who are the most interested and eligible prospects, so he could zero in on the top ones. Is it the older couple looking at condos? The family with four kids?

Ron and Sharon are young, first time home buyers. They like the high-end finishes on a mid-priced home. Mike recommends they get pre-approved for a mortgage.

“How do we know who has the best rates?” asks Ron.
“I can recommend a couple of options, or you can do your own research,” says Mike.
“How long does it usually take to get pre-qualified?” asks Sharon.
“It usually takes a week or two, between doing the paperwork and getting the lender approval.” says Mike.

The young couple leaves and Mike is no further ahead in knowing if they are a potential sale or not. He makes a note in his own system to follow up with them later.

Jen – Uses Pront-O to Qualify Her Leads

Jen accesses her Ownest dashboard from any device, where she instantly sees the system has intelligently screened all potential buyers in her funnel, ranking them for her using the easy-to-read green/yellow/red ranking system based on the Five Cs of Credit. Today she is in the show suite when an older couple comes in.

They are intrigued by the fact they can pre-qualify right on the show suite Ipad (which has been sterilized by Jen) and get right to answering the 8 simple pre-qualification questions. Jen has barely returned to her desk computer when their pre-qualification comes up on her dashboard – green! Jen knows that the couple have looked at a mid-priced condo across the city.

 

 

Based on their verified income and green ranking, they can certainly afford a more luxurious place. Jen offers to show them options closer to where they live now. The couple are thrilled at the higher-end finishes and the location. They’re grateful to Jen because they didn’t even know the development existed.

By noon, Jen has closed the deal –  leaving it to Maestr-O to guide the couple through the online mortgage application.

Now she can turn her attention to the “yellow lead” clients, whom she has never met. They are Nick and Karen, first time homebuyers who have pre-qualified on the builder’s website from home (due to COVID concerns), eight simple questions and a soft credit check. Thanks to the Ownest widget, the link is seamlessly integrated into the builder’s website.  

Jen contacts Nick and Karen and they are impressed at her quick follow-up and the builder’s fast “one stop shop” kind of service, searching thousands of mortgages to match them with the most suitable lender.

Jen knows that Ownest will work with these clients to identify solutions to their complex credit situation. She also knows that she may be in a position to help them find the home that is a better fit for them. Although the young couple loves the layout and finishes of a higher end home, Jen is able to identify a different model with a similar layout in a less expensive community, one more appropriate for their financial situation.

The couple are grateful. She now has their loyalty because they feel like “Jen is looking out for us.” Jen lands the sale because Pront-O gave her insight into their creditworthiness, allowing her to sell them on a property that fit their situation.Two weeks later, Mike follows up with Ron and Sharon. Unfortunately for him, in the interim they have identified a similar home through a realtor friend who has a mortgage broker connection. Mike lost that sale and the potential for several others, because he doesn’t have the credit information required to focus on the strongest leads, or the ability to respond in real time with appropriate options.

With Pront-O intelligently screening your potential customers’ credit, you’ll have all the information you need to manage leads, customer and the sales process – including valuable insights for up-selling and cross-selling.  Isn’t it time Pront-O joined your sales team?